What is the Passenger Vessel Services Act?
by Jonathan Helton and Josh Mason, Grassroot Institute of Hawaii, November 5, 2021
If a cruise ship built outside the U.S. is traveling from California to Alaska, it may not drop off its passengers in Alaska unless it first stops in another country, which in this case would be Canada.
That’s because of a little known federal maritime law enacted in 1886, the Passenger Vessel Services Act, also known as the PVSA.
Signed into law by President Grover Cleveland, the PVSA requires vessels carrying passengers between two U.S. ports to be U.S. registered and built, and mostly owned and crewed by Americans.
It is much like the 1920 Jones Act, except that it applies to passengers instead of merchandise. Like the Jones Act, it has done more harm than good to the U.S. economy, especially for outlying areas such as Hawaii and Alaska that rely heavily on tourism.
How the PVSA has failed to achieve its goals
Since ships were the only method of traveling across large bodies of waters at the time of its signing, the PVSA was intended to protect America’s maritime industry and national security. However, it has had the opposite effect.
Not a single large ocean-going cruise ship has been constructed in the U.S. since 1958. There are virtually no passenger ships of 800 berths or more built in the U.S., in part because U.S. shipyards lack the expertise. A cargo ship built in the U.S. can cost four to five times more than one built abroad. Since no U.S. shipyard has completed a cruise liner in decades, the cost difference would undoubtedly be even higher.
For example, when Disney was offering to pay billions of dollars for PVSA-compliant ships in the 1990s, no American shipyard submitted a bid. These days, the last PVSA-qualified large ocean cruise liner remaining is the Pride of America, which sails in Hawaii. Ironically, it is legally a foreign-built ship, constructed mostly in Germany, and had to receive an exemption from Congress to operate between U.S. ports. Its exemption also restricted its operations to Hawaii.
How the PVSA hinders tourism in the U.S.
That PVSA-compliant cruise liners are scarce inflates the cost for even short cruises. A 2002 report gave a rough estimate: a cruise on a large PVSA-qualified ship would cost $1200 extra for a family of four on a week-long cruise, compared to the same cruise on a foreign liner. Adjusted for inflation, that’s $1,824 today.
Travel writer Robert McGillivray noted “The PVSA reduces demand for American port workers in dockside maintenance and repair… [and] job opportunities for those in the domestic travel and hospitality industries.”
In Hawaii, for example, it is uncommon for luxury cruise ships to operate in Hawaii waters, despite the state’s normally bustling tourism industry.
It is even more uncommon for those ships to be owned by U.S. companies; only Pride of America Ship Holding LLC, a subsidiary of Norwegian Cruise Line, offers cruises that allow passengers to travel between Hawaii ports without visiting a foreign port on their itinerary. The majority of cruise ships that visit are registered in Bermuda or the Bahamas and are required to sail to Fanning Island, 1,000 miles to the south of Hawaii, or some other foreign port, such as Ensenada, Mexico, as part of their itineraries.
The PVSA is also a reason Hawaii has no interisland ferries, despite islands such as Oahu and Maui being within 100 miles of each other. This is due to the expense of U.S.-built ferries, which cost substantially more than comparable vessels manufactured overseas.
For context, the Superferry, Hawaii’s last attempt at an interisland ferry, cost about twice as much as a similarly sized, foreign-built vessel.
Which special interests does the PVSA serve?
The PVSA was intended to favor U.S. interests, but countries such as Canada and Mexico have become its main beneficiaries. That’s because the law says cruise vessels that are not PVSA-compliant that carry passengers between U.S. ports must stop at a foreign port as part of their itineraries.
Because the only large PVSA-qualified vessel remaining is restricted to serving Hawaii, all large cruise ships serving Alaska from Seattle or other West Coast points are required to stop at Canadian ports such as Vancouver or Victoria, with Canadian revenues derived from U.S.-based cruises amounting to an estimated $3.2 billion a year. Not surprisingly, the Canadian government does what it can to ensure that Congress keeps the law in place.
The PVSA is also the reason that Ensenada, Mexico, receives more than three times as many cruise vessel passengers as San Diego. The California city is just 80 miles north and has cruise docks that are vacant 90% of the year.
A stark example of how much power Canada has over the U.S. cruising industry was revealed when it announced that its ports would be closed to large cruise ships until the end of February 2022. Fortunately, in May 2021, Alaska was given a temporary exemption from the PVSA, to expire at the end of Canada’s ban. In June 2021, U.S. Sen. Mike Lee of Utah introduced bills to reform and repeal the law.
Said Lee: “This is the encapsulation of Special Interests First. Or even, you might say, Canada First. … The only reason why Canada wields this tremendous authority over us is because of our own law.”
In September, U.S. Sen. Lisa Murkowski of Alaska introduced a bill to exempt Alaska from the PVSA virtually permanently, stating the law “unintentionally put many Alaskan businesses at the mercy of the Canadian government when Canada closed its borders, including ports. … My new bill guarantees the PVSA will not intrude on Alaska’s tourism economy.”
Sensing its benefits from America’s PVSA might be at risk, Canada moved its reopening date to November 2021, but the political damage, from Canada’s perspective, had been done, and all interested parties now are waiting to see how the various PVSA bills fare in Congress.
The Passenger Vessel Services Act was enacted at a time when ocean travel was the only means to move across large bodies of water, well before air travel existed. That didn’t make it any better of a law than it is now, but clearly the times have changed and, more important, the law has failed to achieve its stated purpose.
Puerto Rico provides a case study for how a repeal or reform of the PVSA could benefit the noncontiguous states and territories. Ships transporting passengers between the U.S. mainland and Puerto Rico have been exempt from the PVSA since 1984, and a report to the territory’s senate found that the waiver has helped create about 5,500 jobs and generated about $200 million in its economy.
Economists have recommended full repeal, but even only reforming the act by removing the U.S.-build requirement would be an improvement, since it would allow U.S. companies to buy less expensive vessels and increase the number of cruise ships stopping at U.S. ports.
In the end, either option would open up more employment and economic opportunities in the U.S.
Let’s hope Congress takes notice soon and capsizes this relic.
Jonathan Helton and Josh Mason are research associates with the Grassroot Institute of Hawaii.